Keep your business afloat in times of injury or illness with Business Expenses Insurance.
When you run your own business, it’s important that you have the right insurance cover in place to offer financial protection in case something goes wrong. Business expenses insurance = offers an ongoing monthly benefit to help you cover those expenses until you get back on your feet.
- The salaries of staff
- Rent on your business premises
- Phone and internet
- Gas and electricity
- Leasing costs for vehicles and equipment
- Business repairs and maintenance
- Loan repayments
- Accounting and audit fees
- Membership fees of industry bodies, professional associations etc.
Who's eligible for this type of cover?
You’ll need to be the person responsible for paying the business’ expenses in order to qualify for business expenses insurance, which means you must be a sole trader, part of a partnership or working as a director. And although you are taking out insurance cover on your own life, a business expenses insurance policy is owned by the business.
How does the payment actually work?
- Business expenses plans generally work on a reimbursement basis
- In the event of a claim, the benefit can be used to pay the expenses that are incurred on a monthly basis
- The first payment will be made from the first day after the waiting period and are made monthly in arrears
- The insurance company will generally pay the agreed amount for fixed expenses for the first 2 months of the benefit period. At the end of this initial period, the insurer reserves the right to reduce the benefit if it exceeds the actual expenses incurred.
When will the payment end?
The benefit payment will end when one of the following occurs:
- You are no longer disabled (or partially disabled) as defined by your policy
- The end of the benefit period (provided no extension has been made)
- The date that cover ends on your policy
Although the exact cover offered varies from one insurer to the next, business expenses insurance policies will typically offer the following benefits:
- Total disablement benefit. This benefit is paid if you are totally or partially disabled and unable to work. You will receive a benefit once the waiting period has been completed, and you’ll continue to receive a payout for as long as you are disabled within the benefit period.
- Partial disablement benefit. Business expenses insurance can also pay a partial benefit if you are partially disabled and unable to work, or only able to perform a limited amount of your normal duties.
- Other benefits. Many business expenses insurance policies also include a specific injury benefit, which guarantees a specified benefit payment for a certain period of time when you suffer a listed injury. A crisis benefit may also be included, offering a guaranteed benefit payment if you suffer one of a list of serious medical conditions.
- Reimbursement basis. Most business expenses policies are offered on a reimbursement basis, which means that as you incur business expenses, you’ll receive a monthly benefit to cover those expenses. The maximum monthly benefit you can receive is determined when you apply for cover.
- Fixed expenses only. This type of cover is only designed to cover the fixed expenses of a business, including staff salaries, ongoing office costs and loan repayments. Expenses that are directly connected to production, for example stock, are not covered, while business expenses insurance also does not supply any sort of replacement income for business owners.
- Waiting period. Business expenses insurance pays a benefit for up to 12 months. This gives you the time and freedom you need to recover, and to decide whether you want to return to work or sell or close down the business. The waiting period from the time you claim to the time you receive your first benefit payment is usually around 14 to 90 days - you can nominate the waiting period you desire when you apply for cover.
- 10-hour clause. Another important feature to look for in business expenses insurance is the ability for you to return to work for a certain number of hours each week – typically 10 hours – without it affecting your benefit. This allows you to keep in touch with your staff and clients and assure them of the business’ security, as well as keep yourself up to date with business operations so you are ready to go upon your return.
Some additional options worth considering
Most polices offer additional benefits that are worth considering. These include:
- Specified injury benefit. Guarantees a benefit payment for a specific amount of time if you suffer one of the injuries defined in your policies
- Crisis benefit. Guarantees a benefit payment if you suffer one of a list of medical conditions
- Locum cover. Covers the expense of hiring a locum to ensure your business continues to run smoothly in your absence
What expenses can and cannot be covered?
In general, this is what a business expenses policy can and can't cover:
|What's covered?||What's excluded?|
How are they different?
For many small business owners, income protection insurance can also provide a crucial form of cover. When you’re ill or injured and unable to work, income protection insurance offers an ongoing monthly benefit to replace up to 75% of your regular income. While income protection can provide a supplementary income, it won't cover the ongoing expenses of running a business...this is where Business Expenses cover comes into play.
While income protection policies don’t include any cover for business expenses as standard, some insurers allow you to add optional business expenses cover to your income protection policy. The main benefit of this approach is that you can ensure that both you and your business will be covered if something goes wrong in the future.
Combining income protection and business expenses cover makes it easy to manage your insurance cover through just one policy, while you might also be able to enjoy cheaper premiums by having one combined policy rather than two separate plans. Combining cover also gives you the peace of mind that your family and your business will be financially protected against the unexpected.
But don’t forget...
However, if you do decide to take out business expenses insurance as an option on your income protection policy, make sure the level of cover available is sufficient for your needs.
Read the fine print on your income protection policy to find out whether you can take out additional business expenses cover and determine whether this is the right option for you.Back to top
Do I actually need to get cover?
Business expenses insurance may not be necessary for your business if there is already some form of protection in place. However before you neglect getting cover, consider the following points:
I'm a self employed worker
With no benefits from your employer to fall back on, Business Expenses Insurance is absolutely essential if your a sole trader with fixed expenses to cover. Your business could be quickly run into the ground if you are unable to generate an income and cover these costs.
My business partners already have cover in place
You will need to determine if the business turnover is directly attributable to your skills and responsibilities in the business. If the company turnover is split between all partners of a business, each must insure their share of the business expenses.
What if my business could still continue to operate without a net loss if I was unable to work?
You would need to consider what the long-term impacts of your absence could do to the business. How would productivity, organisation and staff turnover be impacted if you were no longer present.
Will I be paid if I can still work part-time?
If you are still able to work at a reduced capacity, many policies will offer what is known as a partial-disability benefit. This will continue to pay you a reduced benefit if you are unable to work the same number of hours you were previously.Back to top
- Peace of mind. You can’t predict the future but you can protect yourself against the unexpected, and business expenses insurance gives you the confidence of knowing you will be able to keep your business running even if you are unable to work.
- Keeps your business afloat. Many small businesses would simply fall apart without their owner around to keep things running, so business expenses insurance ensures that you have a business to return to when you recover.
- Up to 100% coverage. Depending on the monthly benefit amount you nominate, you can cover up to 100% of your fixed business expenses.
- Waived premiums. When you’re receiving a monthly benefit, you won’t have to pay any premiums on your business expenses cover.
- Focus on your recovery. Instead of worrying about the financial stability of your business, business expenses cover gives you the freedom to simply focus on getting better.
Another key advantage of business expenses insurance is that your premium payments are tax deductible. This makes it even more affordable to take out this important form of cover. With this in mind, make sure you keep your receipts and other evidence of your business expenses insurance premium payments so you can claim the money back at tax time.
It’s also worth pointing out that the benefits you receive from business expenses insurance are usually assessable for tax.Back to top
Case Study: Simon's Business Expenses Claim
Let’s take the example of a tradesman, Simon, whose business relies heavily on him because he is the primary working contractor. If his total business income is $9,000 per month and his expenses are $3,000 then he can take home a profit of $6,000 income each month. In his personal expenses, Simon has a total of $4,500 of monthly bills and is able to put aside the remaining $1,500 in a savings account.
If Simon is injured and can’t work, he will make a claim on his income protection insurance policy, which will pay out 75% of his income, and 75% of a $6,000 income is $4,500. Simon’s income protection insurance will only just cover his current monthly expenses, but doesn’t leave anything spare, especially after adding in his recent medical expenses from his injury. It doesn’t look good, but his personal finances can survive for a little while until he is back on his feet.
However, on the business side of the equation there are still $3,000 of fixed monthly expenses to be paid, and there is no benefit left from his income protection insurance. Without business expenses insurance the tradesman can’t make the repayments on his ute, and he can’t make the repayments on the equipment loan he took out to buy the tools he needs to complete his jobs. As a result, his car and equipment will be repossessed and his loans called in, ruining his credit rating. Then there are the premiums for his public liability insurance which will lapse and leave him open to risk, and mean it will be more expensive to apply again when he can afford it.
Without business expenses insurance, Simon’s business is not going to be there for him when he recovers from his injury. His credit report will also be littered with black marks, making it hard to start over. The money he has in his savings account may be able to cover his business expenses for a few months, but it won’t be enough for his full recovery time.
If you are injured or fall sick and you are a small business owner, you don’t need financial stress making your recovery harder and longer. Instead you need to be able to rely on business expenses insurance to look after your business while you look after yourself.
In this example, the fixed expenses Simon can include in his business expenses policy include:
- The lease payment on his ute.
- The repayments on his equipment finance.
- Business insurance premiums.
- The salaries of permanent staff.
- Ongoing advertising costs.
What happens if my actual business expenses turn out to be greater than or less than the benefit amount?
If the expenses your business incurs while you are unable to work are less than the maximum benefit amount available, the insurer will typically only pay the amount necessary to cover your expenses. If, however, the business expenses are more than the benefit amount available from your policy, the insurer will only pay your expenses up to the benefit amount - so if you don’t have sufficient cover in place you will end up out of pocket.
What happens if the business continues generating revenue while I am unable to work?
A. In the majority of cases the insurer will continue to pay the full benefit amount.
Is business expenses insurance the same as business interruption insurance?
No. Business interruption insurance provides cover when your business is unable to operate following an insured event, for example a flood, while business expenses insurance provides protection for your business if you are unable to work because of injury or illness.
What happens if I can still work part-time?
Many business expenses insurance policies offer a partial disability benefit for situations when you may only be partially restricted from performing your normal work duties.
How can I work out how much cover I need?
Your accountant or financial adviser can help you calculate your fixed business expenses and the amount of cover you need as a result.
What factors affect the cost of business expenses insurance?
The cost of cover is influenced by your age, your gender, the amount of cover you want, your health status, the type of work you do and a range of other factors.
What’s not covered by business expenses insurance?
Business expenses insurance will not cover the business owner’s salary, capital costs, depreciation costs, or any other costs which the insurer does not classify as regular operating expenses.